Lockheed Wins $112M Deal to Offer System Support for THAAD

Defense giant Lockheed Martin Corp.’s LMT business segment, Mission and Fire Control (MFC), recently secured a modification contract to provide system support for the Terminal High Altitude Area Defense (THAAD) field support contract (TFSC). The ordering period for this deal remains from Mar 25, 2010 through Mar 31, 2019.

Details of the Deal

Valued at $112 million, the contract was awarded by the Missile Defense Agency, Huntsville, AL. Notably, this modification will enhance the total ceiling value for this agreement from $449 million to $561.2 million.

No additional funds have been finalized for this modification deal. Fiscal 2017, 2018 and 2019 operations maintenance and procurement funds will be allocated for the execution of future task orders.

A Brief Note on THAAD

The THAAD anti-ballistic missile system uses a hit-to-kill approach to shoot down short, medium and intermediate ballistic missiles in their terminal phase. It is the only missile defense system with the operational flexibility to intercept both within and outside the Earth’s atmospheres, thus providing versatile capability to the warfighter.

Although originally a U.S. Army program, THAAD had come under the umbrella of the Missile Defense Agency.

What’s Favoring Lockheed?

Lockheed Martin’s MFC business unit derives a major portion of its revenues from its air and missile-defense product line, with THAAD being a notable contributor. In the first quarter, the MFC business segment generated sales of $1.5 billion, which represented 13.6% of the company’s total sales. Notably, the company has been recently witnessing strong uptick in the overseas demand for its missile systems, particularly THAAD. To be more specific, higher demand is being observed from areas in the Middle East for this system.

In fact, the company claims to be the world leader in missile defense, with its systems having achieved more than 100 successful intercepts in combat and flight testing since 1984 — more than any other company — and 50 successful target missions since 1996.

Being the Pentagon’s prime defense contractor, Lockheed Martin already enjoys a lion’s share of the aerospace-defense industry in the U.S. On top of that, $13.5 billion of the additional $25 billion budget proposal that came from President Trump for core Defense Department programs for the current fiscal year has been allocated for a number of defense equipments, including THAAD.Moreover, Global Missiles and Missile Defense Systems (MMDS) market is projected to grow at a CAGR of 2.18% from 2017 to reach $41billion by 2027. All these developments are likely to boost Lockheed Martin’s revenue growth in the future, given that THAAD is one of the top priorities in the Pentagon’s missile system.

Price Performance

Lockheed Martin’s stock has improved about 11.9% over the last one year, underperforming the Zacks categorized Aerospace/Defenseindustry’s gain of 20.4%.This could be because the earlier budget cuts have put pressure on the top line, although the present defense budget is more in favor of the sector. We believe that budget deficits and political uncertainty might make future defense budgets vulnerable to cutbacks. Furthermore, the stock’s performance lags compared with that of The Boeing Company BA, General Dynamics Corp. GD and Huntington Ingalls Industries, Inc. HII, which surpassed the industry mark.

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